Worst ever?? Really???
I've been in emerging markets (
) for 17 years and thought I had seen the worst of fund
flows during a handful of market routs that combined global macro
fears, deteriorating local fundamentals, and extreme
June 2013 set the bar higher (or lower depending on how you see
it) for emerging markets equity outflows turning in the worst
month on record.
Through Wednesday $19.8 billion left emerging markets equity
funds surpassing the previous high of $18.7 billion set back in
I've commented on Fast Money, written, and tweeted for 2 weeks
that I have been amazed at the broad based bashing of emerging
markets and negativity coming from market pundits who frankly
have never truly traded or invested in emerging markets.
The death calls have been building with WSJ, and FT adding
full page articles well after the horse has left the barn to stir
the marginal investor.
As my experience in emerging markets has proven, this is
usually when it starts to get interesting to buy.
Monday, China was the catalyst to the capitulation as hawkish
headlines from the PBoC triggered investor fears of "China's
house of cards" while Fed fears had the world in panic.
Add in rioting in Rio and trouble in Turkey and...Well, you
get it. Here are the numbers for the week ending June 26
: Emerging Markets Equity Funds Reported outflows of $5.62
billion withe following breakdown:
EM Asia Equity Funds = (-$ 1.20 bn)
EMEA Equity Funds = (-$ 0.53 bn )
GEMs Equity Funds = (-$ 3.74 bn)
LatAM Equity Funds = (-$ 0.15 bn)
*all funds stated in U.S. dollar terms
June's record outflow also reversed the entire 2013 year to
date inflows of $18.1 billion in one shot. Emerging markets
debt was no better coming in with their largest outflow week ever
of $5.57 billion. In my view emerging markets debt was a
major culprit to the equity market move as well.
The pressure on emerging markets credit and currencies in the
last month has been enormous. Think about it, you have the
double edged coiled spring of rates and credit spreads at
all-time lows, and then you inject an 80bp move wider in the U.S.
10 years with a run on emerging market currencies as carry trades
Emerging markets debt was the most crowded trade in the world
over the last 5 years as hunt for yield led investors to places
they couldn't pronounce to get positive carry.
We may still be in the early to middle stages of the credit
move as the pressure of higher rates is often self-fulfilling to
credit. Emerging markets debt guys often turn to the equity
market to hedge their large exposures when the macro gets
dicey. Without the same CDS market as the one that existed
pre-crisis, equity indices and country
have become common hedging tools for non-dedicated equity